Principle 1 - Institutional investors should publicly disclose their policy on how they will discharge their stewardship responsibilities.
The Greater Manchester Pension Fund takes its responsibilities as a shareholder seriously. Stewardship is seen as part of the responsibilities of share ownership, and therefore an integral part of the investment strategy.
The Fund's long term approach is set out within the Core Belief Statement (242 KB) . These beliefs form the foundation of discussions, and assist decisions, regarding the structure of the Fund, strategic asset allocation and the selection of investment managers. The Core Belief Statement underscores the Fund's commitment to stewardship as follows:
"Well governed companies that manage their business in a responsible manner will produce higher returns over the long term."
In practice, as an Asset Owner, the Fund's approach is to apply the Code both through its arrangements with its asset managers and through membership of the Local Authority Pension Fund Forum (LAPFF). The Fund will make this approach explicit when it adopts a new Investment Strategy Statement. The Fund has produced a statement on its approach to ethical investments and corporate governance.
Whilst the Fund seeks to adhere to the Stewardship Code, it also encourages its appointed asset managers to do so too. All four of the Fund's external asset managers have adopted statements of compliance with the UK Stewardship Code. Links to their statements are below:
The Fund's Statement of Investment Principles states that the Fund "endeavours to be a socially responsible investor wherever possible but does so within the duties placed upon it under statute and under general trust law principles to manage the Scheme in the best financial interests of the Scheme members and beneficiaries." In that context, and acknowledging its role within the investment chain as an Asset Owner, one of the key objectives for the Fund is to monitor the activities that it has delegated to the appointed external asset managers. See Principle 3 for further details of how the Fund discharges this responsibility.
Principle 2 - Institutional investors should have a robust policy on managing conflicts of interest in relation to stewardship and this policy should be publicly disclosed.
The Fund encourages the asset managers it employs to have effective policies addressing potential conflicts of interest. In respect of conflicts of interest within the Fund, Management Panel members are required to make declarations of interest at the start of panel meetings. The minutes of these meetings are published on the Fund's website.
Tameside Metropolitan Borough Council is the administering authority of the Greater Manchester Pension Fund. Further details of the Council's policy in relation to declarations of interest are available on the Council's website .
Principle 3 - Institutional investors should monitor their investee companies.
Day-to-day responsibility for managing our equity holdings is delegated to our appointed asset managers, and the Fund expects them to monitor companies, intervene where necessary, and report back regularly on activity undertaken. Routine written reports from our asset managers on voting and engagement activity are received by the Management Panel on a quarterly basis. In addition, each appointed external asset manager reports in detail on its policy and activity in these areas by attending the Fund's specialist "Investment Monitoring and ESG Working Group" on an annual basis.
The Investment Monitoring and ESG Working Group is a specialist forum of the Fund's Management Panel that considers these issues and provides a unique setting in which to challenge the asset managers' approaches. One way in which the effectiveness of the asset managers' approaches is monitored is through their detailed presentations of case studies of individual company engagements to the Working Group. These engagements may take place over multi-year periods and be followed up by the Working Group.
Principle 4 - Institutional investors should establish clear guidelines on when and how they will escalate their activities as a method of protecting and enhancing shareholder value.
As highlighted above, responsibility for day-to-day interaction with companies is delegated to the Fund's asset managers, including the escalation of engagement when necessary. Their guidelines for such activities are expected to be disclosed in their own statement of adherence to the Stewardship Code.
However on occasion, the Fund may itself choose to escalate activity, principally via engagement activity through LAPFF.
LAPFF engagement is unique in that Councillors take a direct role in the meetings with companies. LAPFF take a constructive and pragmatic approach to engagement, which is typically confidential. LAPFF may escalate an engagement by taking a public stance and press releases are available on the LAPFF website .
A summary of LAPFF's company engagement activities is published on a quarterly basis, including the company name and domicile, engagement topic, the nature of the activity and its outcome. LAPFF's Quarterly Engagement Reports are available on the website .
An example of a LAPFF engagement that was escalated relates to a UK listed transport company. The Chair of the Fund engaged over many years with the Board and Executives of the company, in relation to labour relations at its US subsidiary. The company failed to respond positively to a number of engagement meetings. LAPFF escalated their approach by taking a public stance, and further escalated by requesting that member funds co-file a shareholder resolution at the company's AGM. The Fund was one of three LAPFF member funds to co-file the resolution. The resolution sought an independent review of the allegations made against the company and achieved a record vote against management for an employee rights resolution.
The Fund has a detailed policy in relation to the filing of shareholder resolutions.
Principle 5 - Institutional investors should be willing to act collectively with other investors where appropriate.
The Fund seeks to work collaboratively with other institutional shareholders in order to maximise the influence that it can have on individual companies. The Fund seeks to achieve this through membership of both LAPFF, which engages with companies over environmental, social and governance issues, and the Institutional Investor Group on Climate Change, a forum for pension funds and investment managers.
It is more likely that the Fund will collectively pursue thematic engagement, rather than company specific issues, with likeminded investors. For example, over recent years, the Fund, through its membership of LAPFF, has worked with a coalition of investors to file challenging but supportive shareholder resolutions at energy and mining companies in relation to enhanced disclosure of climate change risks. Typically, company management will contest a shareholder resolution. However, in these cases, the collective support from a wide investor base, coupled with the constructive engagement in the run up to the resolutions being filed, led to company management supporting the resolutions. This was an extremely positive outcome.
The Fund's contact for enquiries relating to collective stewardship initiatives is Tom Harrington, Senior Investments Manager (Public Markets) – 0161 301 7148, firstname.lastname@example.org.
Principle 6 - Institutional investors should have a clear policy on voting and disclosure of voting activity.
In respect of shareholder voting, the Fund exercises all votes attaching to its direct UK equity holdings, and seeks to vote where practical and commercially prudent in respect of direct holdings in overseas markets. Responsibility for the exercise of voting rights has been delegated to the Fund's appointed asset managers.
In casting the Fund's votes in the UK, the appointed external active asset managers are mandated to implement the Fund's bespoke "UK Voting Guidelines". These include, amongst other things, consideration of company explanations of compliance with the Corporate Governance Code, and a focus on the composition of boards of directors, director remuneration and internal control and audit issues. They also stipulate how the external active asset managers are required to exercise their voting rights in certain clearly defined circumstances in relation to, for example, pre-emption rights and the appointment of auditors. Any overseas votes exercised must be cast in line with the spirit of the "UK Voting Guidelines". The appointed external passive asset manager normally implements its own 'Voting Policy'. However the passive asset manager will vote according to the Fund's instructions on a case by case basis should the Fund so require, in relation to the Fund's share of assets.
Regular reports are received from the asset managers on how votes have been cast, including the proportion of votes cast against company management. Controversial issues are discussed at quarterly meetings of the Fund's specialist "Investment Monitoring and ESG Working Group". The Fund does not currently disclose any voting data, but is considering its policy on disclosure of voting activity in light of the proposed pooling of investments within the Local Government Pension Scheme.
The Fund subscribes to the research and advisory service of PIRC Ltd. This subscription assists the Fund in developing and monitoring its policies and approach both specifically with regards to voting, and more generally, to wider corporate governance issues. However, the specific voting recommendations provided to the Fund as part of the subscription do not override the Fund's bespoke "UK Voting Guidelines" which the Fund's appointed asset managers implement on a delegated basis. The Fund also receives an 'Alerts' service from LAPFF which highlights corporate governance issues of concern at investee companies. When an Alert is received in relation to a company in which the Fund holds shares, the relevant external active asset manager may be consulted for their views on the issues raised, and the ultimate decision on how to vote rests with the Fund.
The Fund participates in a prudently structured Stocklending program via its Custodian. The Fund does not lend UK and US Equities and does not take cash as collateral. The maximum volumes of stock "on loan" are set at a lower level than the LGPS Regulations permit. All loans must be pre-collateralised and be subject to recall upon demand.
Certain pooled vehicles within which the Fund invests may undertake an amount of Stocklending on behalf of the pooled vehicle investors. Where this occurs, the extent of the activity is disclosed by the pooled vehicle. The Fund considers this aspect of the pooled vehicle when making investment decisions.
Principle 7 - Institutional investors should report periodically on their stewardship and voting activities.
The Fund maintains a clear record of its stewardship activities, which includes the reports from our asset managers to both the Management Panel and the specialist "Investment Monitoring and ESG Working Group", and a detailed record of the Fund's voting activities.
The Fund reports annually on its general position vis-à-vis stewardship activity through a specific section on its approach to ethical investments and corporate governance within the report and accounts.
The Fund is considering its approach to the public disclosure and reporting of its voting and engagement activities in light of the proposed pooling of investments within the Local Government Pension Scheme.
Two of the Fund's external asset managers have obtained independent assurance of their voting processes in line with the AAF 01/06 framework. Further details are available in their own statements of adherence to the Stewardship Code.
Adopted by the Greater Manchester Pension Fund Management Panel on 18 November 2016.